Kimberly-Clark Beats Estimates - Analyst Blog
Kimberly-Clark Corporation ( KMB ) has reported adjusted earnings (excluding pulp and tissue restructuring charges) of $1.24 per share in the first quarter of 2012 nicely beating the Zacks Consensus Estimate of $1.17 per share. The adjusted earnings also surpassed the prior-year quarter earnings of $1.09 per share by 14%.
The bottom line growth was boosted by organic sales growth, cost savings and a lower share count which more than made up for the higher marketing expenses and research and general costs in the quarter.
Quarter in Detail
During the quarter, net sales showed growth of 4% to $5.2 billion, briskly outpacing the Zacks Consensus Revenue Estimate of $5.0 billion. Organic sales climbed 6% in the first quarter of 2012, supported by robust sales growth of 14% in K-C International.
The higher sales volume contributed 2% in the sales increase, while net selling prices added 3%. Product mix contributed 1% to the sales growth. However, the results were impacted by unfavorable foreign currency fluctuations which reduced the sales growth by 1%. The exit of non-strategic products also reduced sales volumes by an additional 1%.
Excluding the costs for the pulp and tissue restructuring, adjusted operating profit climbed 12% to $735 million in the first quarter of 2012 driven by strong organic growth and cost savings from the Kimberly-Clark's FORCE (Focused On Reducing Costs Everywhere) program. However, inflation in key cost inputs of approximately $10 million overshadowed the improved results in the reported quarter.
Personal Care: Sales grew 8% on a year-over-year basis to $2.4 billion. The results were benefited from an increase in sales volumes and net selling prices which offset the negative impact from currency fluctuations. Segment operating profit increased 3% on a year-over-year basis to $399 million in the quarter.
Consumer Tissue: Sales declined 1% in the quarter to $1.7 billion, due to volume and currency headwinds which offset benefits from price and mix. Segment operating profit climbed 45% to $217 million in the quarter.
K-C Professional ( KCP ) & Other: Sales improved 4% on a year-over-year basis to $0.8 billion, on the back of improved organic sales volumes, net selling prices and changes in product mix. However, unfavorable currency fluctuations and lost sales due to pulp and tissue restructuring activities offset the positive impact. Segment operating profit for the segment increased 20% to $125 million.
Health Care: Sales advanced 4% on a year-over-year basis to $0.4 billion, resulting from an increase in sales volumes and net selling prices. Operating profit was $53 million, up 6% year over year.
Pulp and Tissue Restructuring Update
In January 2011, Kimberly-Clark initiated a pulp and tissue restructuring in order to exit its remaining integrated pulp manufacturing operations and improve the underlying profitability and return on invested capital of its consumer tissue and K-C Professional businesses.
In the first quarter of 2012, the company incurred restructuring charges of $24 million after tax and generated operating profit benefits of $5 million from restructuring actions.
The total restructuring charges from the initiative are expected to be in the range of $385 to $420 million after tax through the end of 2012. In addition, 30% to 40% of the total charges will be incurred in cash.
Further, Kimberly-Clark expects that the restructuring will decrease 2013 annual net sales by $250 to $300 million, and will likely increase operating profit by at least $75 million in 2013 and at least $100 million in 2014.
Capital Structure and Balance Sheet
Cash flow from operations improved in the first quarter of 2012 to $585 million from $517 million generated in the fourth quarter of 2011. Capital spending was $259 million in the reported quarter as compared to $312 million in the prior quarter.
In the first quarter of 2012, Kimberly-Clark repurchased approximately 6.3 million shares for $460 million.
Kimberly-Clark has re-affirmed its guidance for fiscal 2012. The company expects adjusted earnings to lie in the range of $5.00 to $5.15 per share, compared to 2011.
For fiscal 2012, the company expects its capital spending in the range of $1.0 to $1.1 billion. In addition, share repurchases are expected to total $900 million to $1.1 billion, subject to market conditions.
The company continues to expect the adjusted effective tax rate for full-year 2012 in the range of 30% - 32%.
Kimberly-Clark, which competes with Procter & Gamble Co. ( PG ), currently holds a Zacks #3 Rank (a short-term 'Hold' rating). Over the long term, we provide a Neutral recommendation on the stock.
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